Under California law, no-cotest clauses in California Trust and Wills have been substantially limited in their applicability. In most cases they simply will not apply. But even when a no-contest clause does apply, it may still be possible to escape its affects. In this video, Stewart Albertson discusses when you can escape the harsh affects of a no-contest clause.
If you are a California Trustee, here are eight must know facts for your to properly administer your Trust and keep yourself safe from any personal liability:
1. Know Your Duties
Being a Trustee is a thankless job. You owe many duties and obligations to the beneficiaries, but they owe you no duties at all. That means, if you are going to succeed as a Trustee, you have to know what your duties are in the first place.
2. Know the Uniform Prudent Investor Act
If you do not follow any other duty as Trustee, at least know and follow the Uniform Prudent Investor Act. When the Trust creator was alive, he or she was able to invest however they pleased. Not so with you. As a successor Trustee you have a duty to invest prudently. That means you have to follow the investment rules. And you really should have an investor’s policy statement (or IPS). An IPS is an investment plan that your financial professional creates for you. You can then invest according to that plan and check in with the financial professional once per quarter to be sure the investments are performing as expected. The law does not mandate an IPS, but when we attack Trustee’s is looks very bad in court to invest without one. And for good reason, how do you know your are investing prudently if you have no written plan?
3. Know Your beneficiaries
As a Trustee, you have a duty to know your beneficiaries, especially if the Trust gives you the power to make distributions based on a standard, such as health, education, maintenance and support (the standard “ascertainable standard”). When you have that power, it is up to you (the Trustee) to determine what the beneficiaries needs are and whether a distribution must be made to meet those needs. You are not allowed to ignore the beneficiary or even force them to ask for a distribution. Rather, the Trustee must be proactive and inquire as to the beneficiaries needs.
4. Know your assets
Trustees must take control of Trust assets (referred to as “marshaling” assets). But you cannot take control of assets you don’t know about, so your first job is to get to know the Trust assets. How are they held, how are they invested, and what is the future plan for each asset? If an asset is in danger of losing value, then the Trustee must take action to protect the assets and prevent a loss, if possible.
5. Keep all receipts and statements so you can account
Every Trustee must account for their actions (read more about Trust accountings here). That means you have to demonstrate what assets you started with, what you received in income, what you spent on expenses, the distributions you made to beneficiaries, and what is left at the end of the accounting period. And each of these categories must be supported by detailed schedules showing each transactions by date, description and amount. The only way to report that level of detail is to keep all receipts, account statements, and similar financial documents so a thorough accounting can be prepared.
6. Understand Trust accounting
Trust accounts are VERY DIFFERENT from corporate or business accountings. If you ask your CPA for a Trust accounting, and they give you a balance sheet and profit and loss statement as you would have for a business accounting, run to another CPA immediately. Trust accounts do not have balance sheets and profit and loss statements. In fact, Probate Code section 1061 lists exactly what a Trust accounting mut have, which is a list of charges and credits. The charges must begin with the assets on hand at the start of the accounting period, the income received and any gain on sale (in other words, every asset coming into the “charge” of the Trustee). The credits represent the cost side of things, such as the expenses paid, the distributions to beneficiaries, any losses on sale, and ends with the assets on hand at the end of the accounting period. The charges must equal the credits for the accounting to balance. And each category must have a supporting schedule showing all the details (for example, all the detail for every expense paid).
7. Know the Statute of Limitations
How long does a beneficiary have to file a lawsuit against you as Trustee? It depends. If you serve Trustee’s notice under Probate Code section 16061.7, then the beneficiary has 120 days in which to file to contest the Trust terms. As for your actions as Trustee, that statute remains open indefinitely unless you provide an accounting to the beneficiaries. Once an accounting is provided (assuming is fully discloses all actions you took as Trustee), then the beneficiary has three years to sue the Trustee. If you file your accounting in court and see court approval, then the beneficiary must either object prior to court approval or be forever barred from suing you as trustee for everything reported in the accounting.
8. Communication/Information is Key
Being a Trustee is a thankless job, especially if you are dealing with difficult or demanding beneficiaries. But you have too many duties to ignore beneficiaries. The key is to communicate as often as possible with beneficiaries. Send out copies of bank statements, send letters updating beneficiaries on the Trust administration if you have to, whatever it takes. The more you communicate, the better.
Do you have the evidence required to prove your case in Court? Why not make the other side prove it instead? Under California law, there are time when you can shift the burden of proof onto your opponent. In this video, Stewart Albertson describes the burden shift under California law.
Getting the cold shoulder from your Trustee? While every Trustee has a duty to communicate with the beneficiaries and provide required information, it does not always happen that way. Maybe the Trustee does not know their fiduciary duties, maybe they don’t know the answer to the questions your asking, or worse yet, maybe they don’t want you to know what they are up to.
When a Trustee fails to communicate, beneficiaries usually assume the worst. And, for good reason: a lack of communication is usually the result of people doing things they should not do.
But as a beneficiary you are entitled to communication from your Trustee. How do you enforce that? You file a petition in court and demand to receive the information that you requested. Once the petition is filed, not only can you get the information by way or a court order, but you also have subpoena power. Said power allows you to subpoena the documents you are after.
While you should never get the cold shoulder from your Trustee, you can take action to stop that. It’s up to you to act to protect your rights.
Ever have someone make you a promise? How about a promise to leave you property after they die if only you take care of them while they are alive? That can be a good deal or a terrible deal when the person making the promise fails to ever create a Will naming you as a beneficiary. In this video, Stewart Albertson discusses whether or not you can enforce a promise to leave you property in a California Will.
If you are the beneficiary of a California Will, there’s a few things you need to know in order to understand and protect your rights. Here’s the Top 10 things you must know as a Will Beneficiary:
1. The Last Will Controls
Sometimes people create more than one Will. Under California law, the last Will made usually wins. But that depends on whether the decedent had the capacity to create a Will and was not subject to undue influence. The key is to find the last Will created. And it must be an original.
2. Executor’s Attorney is not Your Attorney
This may sound strange if you are not used to this process, but even though the executor’s attorney is paid from the estate (essentially paid from your assets) that attorney is NOT your attorney. The executor (or administrator if its an intestate estate) has the right to hire an attorney and that attorney advises the executor ONLY. Want your own legal advice? That’s fine, but you will have to hire and pay for your own independent lawyer. Welcome to probate!
3. The Empty Will Syndrome
You are named as a beneficiary under a Will, so what? A Will only controls assets that pass through the probate process. In todays complicated world, there’s precious little that passes through probate. Joint tenancy accounts or real property, life insurance, retirement account, trust interests, paid-on-death or transfer-on-death accounts all pass outside of probate. That means the Will does NOT control those assets. If there are no assets that pass through probate, then you (as a Will beneficiary) are a beneficiary of nothing. Congratulations, don’t spend it all in one place!
4. A Will is not a Will until a Court will call it a Will
So you think you have a Will? The court will be the judge of that. In California (and most places throughout the U.S.) Wills must be “admitted” to probate. Probate comes from a Latin word meaning to prove. The beginning of the probate process is meant to prove the Will is, in fact, a valid and enforceable Will. In admitting a Will to probate, the Court is essentially finding the Will to be a valid documents—in other words, the Will was proven to be a true Will.
5. Know your Bonds
The default rule in probate is that every executor or administrator is required to obtain a surety bond. A bond is not insurance, not exactly. A bond provides a source of funds that is paid out to the probate estate in the event the executor or administrator breaches a fiduciary duty. But a bond does not automatically pay out once an executor breaches a duty—quite the contrary. Most bond companies will enter the matter and fight in favor of the executor’s actions if a breach of duty is raised. If a Will beneficiary prevails, then the Court can order payment to the estate by the bonding company, and the bond company then has the right to sue the executor to recover payment.
Bonds are good and important to protect the interests of a beneficiary. But most Wills have a provision that waives bond, which the Court will do if the Will allows it. Also, the beneficiaries as a group can waive bond, assuming all beneficiaries agree to do so. The bond does cost the estate in the form of a bond premium. But it usually is a small price to pay for the protection a bond provides.
6. Inventory and Appraisals
All probate estate assets MUST be inventoried and appraised by a probate appraiser (sometimes called the probate referee) assigned to your probate case. The only thing that is not appraised by the probate referee is cash. It does not matter that you have your own appraisal or you have an appraiser you want to use. The probate referee is the only one who can appraise your estate assets.
However, there are times when a probate referee will use an independent appraiser’s information to assemble an appraisal. This typically happens with unique items that are outside the probate referee’s area of expertise, such as appraisal of race horses. But most estate don’t have race horses, so be prepared to work with the probate referee assigned to your case by the court.
7. Creditors Claims
The primary purpose of the probate process is to protect creditors. There is a mandatory waiting period of 120 days after the estate is opened (and Letters are issued) during which creditors are allowed to make claims against the estate assets. And creditor’s claims take precedence over any rights of the beneficiaries. In fact, every executor is required to notify all known creditors and provide them with a copy of the claim form (to make it as easy as possible for the creditor’s to submit a claim to probate).
8. Reports and Accounting
If you have a probate estate that does not require an estate tax return to be filed (which means your estate is worth less than $5 million—most are), then your executor must either close the estate or file a report within 12 months of the estate being opened. If an estate tax return is due, then the deadline is 18 months. Reports allow the probate court to review what is occurring in the estate and ensure nothing is amiss while the estate waits to close. As a beneficiary, you have the right to object to the report if it contains anything to which you disagree.
9. Court Order required for distribution
You cannot receive any assets from the estate until a court order is issued. It does not matter than you are a beneficiary and entitled to the assets, the property does not legally belong to you yet. It belongs to the estate and it remains an asset of the estate (and in the executor’s possession) until a court orders the property to be distributed. Frustrating, I know, but that’s the rule.
10. Executor Fees, Attorneys Fees and Costs
We all love fees (being paid them, not having to pay them). Fees are a necessary part of the probate process. In probate, there are two categories of fees you need to know about, statutory fees and extraordinary fees.
Financial elder abuse in California is become more commonplace with our aging population. In California, there are laws that are meant to protect the physical and financial well being of seniors. In this video, Stewart Albertson discusses the four basic facts required under California law to bring a financial elder abuse claim.
If you are an Executor in California, there are a few things you must know if you hope to do your job the right way. Here’s our top ten list for every California Executor:
1. You have no powers or duties until the court appoints you as Executor
You may be named as an Executor under a Will, but you really are just a suggested Executor until the court appoints you as Executor. That means you have to file a Petition for Probate with the court, receive a court order appointing you, and then have Letters Testamentary issued. The Letters Testamentary are what actually give you the legal authority to act as Executor. Once you have Letters, you can start collecting the assets and accounts of the decedent.
2. You Must Inventory and Appraise the Estate
You may know exactly what the assets of the estate are worth, but you have a legal duty to have the court-appointed probate appraiser give you an appraisal for all assets (other than cash). Even puclicly traded stocks must be appraised by the probate appraiser. There is a judicial council form created for this purpose that must be used, and you only have 120 days in which to file the completed appraisal with the court–the sooner you get started, the better.
3. Probate is all about the Creditors
You may be surprised to learn that the number one reason we have probate is to protect creditors and make sure creditors are paid. That’s why you have a duty to serve notice of the probate on all known creditors and you MUST send them a copy of the creditor claim form that they can use to submit their claim to probate. In other words, not only must you notify creditors, but you have to make it as easy as possible for them to file a claim against an estate.
4. No Distributions Without Court Order
You cannot, under any circumstances, distribute probate assets to a beneficiary without first obtaining a court order authorizing you to do so. It does not matter if a beneficiary is suffering a hardship, or if they are the only beneficiary of the estate and will receive the assets eventually, a court order is required.
5. No Fees without Court Order
The same is true for your fees and the fees for the estate’s attorney. No fees whatsoever can be paid without first obtaining court approval for payment.
6. Full Powers Are a Must
Technically, in California all actions you take as an Executor require Court approval, especially selling real estate. However, when you first petition the court to act as Executor, you can ask for full powers under the Independent Administration of Estates Act. Full powers allow you to do things like sell real property without first obtaining court approval. So try to obtain full powers whenever possible, especially if you have real property as part of your estate.
7. Know Your Way Around a Bond
Many estates require you to be bonded as an Executor. A bond ensures that there are assets to pay to beneficiaries if you screw up as Executor. However, a bond is not insurance. If you do something wrong that costs the estate money, then the bond will pay the estate, but then the bonding company will turn around and sue you to recover its money. That means you should fully understand what you are getting yourself into when becoming an executor and agreeing to be bonded.
8. Reports and Accoutning
If you are able to wrap the estate up in 12 months, then you can file your final report and accounting all at once and obtain a final order to distribute the estate assets and pay your fees. If, however, the estate remains open for longer than 12 months, then you are required to file a report with the court. A probate report is simply an update on what is happening with the estate. As part of the report you can even ask for a preliminary distribution or a partial payment of fees. But the report, as with just about every court filing, comes with a hefty filing fee, so it is usually best to get the entire estate wrapped up at one time.
9. Final Discharge
Once the court approves your final report and accounting, you are not off the hook yet. You have to make the distributions out to beneficiaries and have them sign receipts for the assets, which must then be filed with the court. You also have to file an ex-parte application for discharge. Once the court approves your discharge as Executor, then the process is complete. But if you fail to file the receipt and ask for discharge, then you are still on the hook with the court for the estate assets. Don’t forget to obtain your discharge before its too late.
10. Learn Your Duties
Executors have a ton of duties and obligations they must fulfill. Do yourself a favor and learn as much as you can about your duties and obligations because whether you know them or not, you will be on the hook for any breach of duty you undertake.
Ever wonder who has the legal right to control your remains after you die? I have never thought about it either, but it came to light last year with Casey Kasem’s body went missing. Where did it go and who has the right to control it? Believe it or not, there are rules for that. In this video, Keith Davidson describes the rules on who controls your remains.
Have to share this, our new video that describes how we feel about standing, fighting and winning for our clients. Trust and Will lawsuits are about the principal for most people, not the money. And sometimes, you have to fight for what you believe in: